Having multiple jobs and streams of income is a great way to speed up your progress and help you reach your financial goals, like paying off debt or reaching “financial independence“, a lot faster. But there are also some drawbacks to working multiple jobs. Aside from things like maintaining a good work-life balance, there are also financial and tax considerations that need to be taken into account if you are looking to work a second job (or if you already have one). Since tax season is upon us, I wanted to share a few things you should keep in mind when filing taxes and filling out withholding forms if you have multiple jobs.
Income Tax Withholding
Most people I know HATE finding out that they owe income taxes. In fact, they don’t even like getting a small refund. They’d rather give an interest-free loan to the government all year and receive a big lump-sum payment after they’ve filed their income taxes. Personally, I find this to be a silly point-of-view. I don’t mind getting only a small refund or having to pay in a little bit too. What people with multiple jobs don’t always understand though is that each of their employers requires a separate withholding form and they don’t take into account how much you are having withheld from your paychecks by your other employer. This can result in you having too little withheld throughout the year and having to pay in when tax season rolls around.
To remedy this situation, be sure to claim “1” at only one of your employers. By claiming “1” exemption at one employer and “0” at the other, you’ll have more withheld from your paycheck each pay period and hopefully this will be enough to off-set any income taxes you would owe back at the end of the year. If you are unsure how this would work in your situation, be sure to talk to your accountant or tax expert to find out more details.
Social Security Tax
Overpaying into social security is also a concern if you have more than one job. There is a limit to how much you have to pay in social security tax each year. The income limit for social security tax for 2014 is $117,000. Once you hit $117,000 in income from your multiple jobs, you shouldn’t be paying any more in social security tax, but since the income limit is being hit due to having multiple employers, neither of your employers will stop withholding social security from your checks. If you exceed the limit you can claim excess payments as a tax credit on your income tax return.
Self-Employed with a full-time job?
As freelancers, we are all aware of how much self-employment taxes suck. They can take up to 33% of your freelance income!
But, if you are self-employed and are still holding down a full-time job, you may not necessarily have to pay any self-employment taxes. What?! That’s right, if your self-employment taxes for the tax year are less than $1,000, the IRS will allow you to adjust for this by increasing your withholding at your full-time job.
What tax tips (or questions) do you have for people with more than one job?
***YOU SHOULD ALWAYS SEEK FINAL ADVICE FROM A TAX PROFESSIONAL. I’M JUST A BLOGGER TRYING TO MAKE MY WAY IN THE BIG, BAD, PF WORLD. 🙂